Politics

State jobs agency lost track of $8 million in overdue loans

Madison - For more than a year, the state's flagship jobs agency failed to track whether businesses are repaying loans from state taxpayers - leaving the public in the dark about how much they are owed on a total of $8 million in past-due loans to 99 businesses.

The blunder - only the latest in a whole series of problems at the Wisconsin Economic Development Corp. - began at nearly the same time as the quasi-public authority championed by Gov. Scott Walker took over for the state's previous jobs agency.

The loans that are past due by at least 30 days - and in some cases much longer than that - amount to 16% of the state agency's total loan portfolio of $51 million in loans, said Ryan Murray, the WEDC's chief operating officer. Murray said he learned from staff late last week that the agency had stopped systematically tracking its loan collection efforts and has no records on those efforts since June 2011, the month before the WEDC started.

The agency is still determining how much taxpayers are owed on the largely state-funded loans and how much is past due. The failure was discovered as the agency prepared materials for an ongoing legislative audit, Murray said, adding that the agency is still investigating how the mistakes were made, why it took so long to discover them and what will happen to those employees who failed to keep tabs on the taxpayer-funded loans.

"Clearly, a ball was dropped here a year ago but the system worked in uncovering it," said Murray, who went on to clarify what he meant. "The system to detect this worked but the system to collect on loans obviously did not."

But Democrats were incredulous at the failure at the WEDC, which has been repeatedly touted by Walker as an agency that would be run like a business.

"It's a horrendous abuse of the public trust," Rep. Jon Richards (D-Milwaukee) said. "If it had happened at a private business, heads would roll, not just one head but many heads."

Murray agreed there was "clearly a personnel situation here," though he didn't offer more details about how it would be handled.

Murray said that he had informed Walker, who is also the chairman of the WEDC, late last week about the loan problems and that on Wednesday he had informed the WEDC's board members about it. A spokeswoman for Walker did not respond to a request for comment.

But Paul Jadin, the head of the WEDC, didn't mention the blunder when he testified at length Wednesday morning before the Legislature's Joint Audit Committee, which was holding a hearing on an earlier audit of the WEDC that focused largely on whether the agency was being transparent and accountable to taxpayers about its subsidies to businesses.

Murray, who was also present at the hearing, said that Jadin didn't discuss the issue because WEDC officials wanted to first inform the agency's board. The WEDC board will take up the issue at its Friday board meeting.

Richards, who sits on the audit committee, said Jadin should have told the lawmakers.

Murray said the WEDC had sent out a letter Wednesday to some of the businesses with past-due loans and would start making more contacts with all of the businesses in the coming days. He said the agency would likely ask the state Department of Justice to sue some of the businesses to recover the money. The state has also retained a law firm specializing in debt collections to assist in the process, he said.

Walker and lawmakers last year dissolved the state Department of Commerce and created the WEDC, which they said would be more effective at sparking the economy. Its board consists primarily of business people, but also lawmakers from both parties.

The state's economic development agency drew headlines this summer when the state had to suspend and restart bidding on a state contract after it was revealed that the WEDC had offered one of the bidders, Skyward of Stevens Point, tax credits if it won the contract.

The agency drew more headlines after federal officials recently raised concerns that for eight months the WEDC spent nearly $10 million without legal authority. WEDC board members criticized Walker appointees to the agency for not informing them of those concerns until after the issue was uncovered by the news media.

A director for the U.S. Housing and Urban Development Department detailed the mishandling of public funds in May and August letters to the governor's administration secretary, Mike Huebsch. Huebsch responded in a Sept. 12 letter, but the matter was not broached with the WECD board when it met eight days later.

Jadin announced last month he is leaving the agency on Nov. 1 to take a job with Thrive, an economic development agency based in Madison. Murray, a former deputy chief of staff to Walker, was brought over to WEDC in a July shake-up of top officials there.

In the transition from the Department of Commerce to the WEDC, the agency lost many employees, who shifted to other agencies or retired. It is now back at full staff levels.

About Jason Stein

Jason Stein covers the state Capitol and is the author with his colleague Patrick Marley of "More than They Bargained For: Scott Walker, Unions and the Fight for Wisconsin." His work has been recognized by journalism groups such as the American Society of News Editors, the Society of American Business Editors and Writers, and the Association of Capitol Reporters and Editors.